Last-minute bill would rein in CT budget deficit forecasts

Future state deficit forecasts are likely to shrink significantly under a method imposed in the new state budget plan that disregards billions of dollars in annual expenditures not fixed by contract or federal mandate.

The language, proposed by Gov. Dannel P. Malloy, is included in an omnibus policy bill to help implement the proposed $19.76 billion budget for the fiscal year beginning July 1.

House Minority Leader Themis Klarides, R-Derby, blasted the measure — which was released only a few hours before the Senate was expected to debate it Wednesday — as a means to hide Connecticut’s fiscal woes from the public.

Malloy and his budget director, Benjamin Barnes, have been critical for several years of the deficit-forecasting methodology used by the legislature’s nonpartisan Office of Fiscal Analysis.

OFA generally tries to assess both the current and future costs of all programs, staffing, grants and other expenditures, whether fixed by contract or federal requirement, or simply set by state law.

The new methodology would disregard cost increases in most state programs, excepting debt service, retirement benefits and federal entitlement programs.

“Moving away from ‘current services’ will help us ensure that government does not continue to increase spending on autopilot,” the governor said Wednesday. “As part the budget agreement, the state will change how it does business, and give residents and businesses the predictability they seek as government works to live within its means.”

The Democrat-controlled Senate adopted the bill late Thursday in a 20-16 vote largely along party lines. The House of Representatives is expected to consider the measure on Friday.

Malloy, who inherited a record-setting $3.7 billion deficit — calculated under the methodology he opposes — when he took office in January 2011, has struggled throughout his administration with deficit forecasts.

In most cases, nonpartisan analysts have warned that the budgets the governor and legislature have approved are balanced for a year or two at most, but then — unless adjusted — would run into deficit. This projections would prove accurate, leading Malloy and legislators to cut spending and divert costs into future years in 2013 and 2014, and to raise taxes in 2015.

Nonpartisan staff says finances are on pace to run $960 million in the red in 2016-17, and more than $2 billion in deficit in each of the following two years. And even if the 2016-17 deficit is closed with the new budget plan – and the spending reductions within it are achieved and maintained in the future – deficits of $1.3 billion and $1.4 billion still are projected for 2017-18 and 2018-19, respectively.

During better fiscal times in the 1990s and 2000s, several adopted budgets were projected to run surpluses for three years or more.

And while Malloy insisted throughout his first term that he largely had solved Connecticut’s budget instability, he began last winter referring to a “new economic reality.”

Limited revenue growth and rapidly increasing fixed costs — most tied to retirement benefits and bonded debt — continue to push budgets into the red. Medicaid, a federal entitlement program, also largely is a fixed cost, though it hasn’t grow rapidly over the past the few years.

“Why would anyone want less information when it comes to forecasting budget trends, unless of course you wanted [to] keep bad news from the public, which is what the governor intends to do,” Klarides said. “It is amazing the lengths that this administration will go to restrict the free flow of information and the steps it intends to take to cloud transparency in government.’’

Administration officials noted that Malloy proposed this change in his annual budget presentation in February, and that it was discussed in talks with legislative leaders.

During the 2014 gubernatorial campaign, Republicans Tom Foley and John McKinney criticized how the legislature uses current services-based deficit forecasts in their budget preparations. But neither proposed changes that would have stopped legislative analysts from releasing this information in their public reports.

Three years into Malloy’s first term, the administration changed how it calculated potential future deficits, addressing fixed costs but disregarding inflationary adjustments as well as other cost increases only mandated by state law.

Supporters of the nonpartisan analysts’ approach call it an effective planning tool that enables state government to anticipate the need to cut costs, raise revenue, or both, in the near future.

But Barnes has called this approach to budget forecasting “preposterous,” and both he and Malloy have said it leads too many legislators to conclude incorrectly that more state programs cannot be cut.

A better approach, the administration says, is to calculate how much revenue existing tax and fee structures will raise, and then subtract all costs fixed by contract or federal requirement.

Rather than projecting the full cost of maintain existing state programs, analysts instead would simply report how much must be cut from current spending to meet fixed costs while avoiding the need to raise revenue.

The problem with that approach, critics say, is that Connecticut is facing a crisis driven largely by exploding debt costs — much of which stem from seven decades of inadequate savings habits. And projecting only “fixed costs” ignores other programs that are gradually being squeezed out of the budget.

Just before the state income tax was enacted in 1991, nearly 40 percent of the budget’s general fund was spent on children, including elementary, secondary and higher education, school readiness programs and health care.

Despite that tax, which provides nearly half of the revenue for the entire state budget, the ratio of spending on programs that impact children is down to 30 percent.

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ABOUT THE AUTHOR

Keith M. Phaneuf Keith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher Education. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut.